The Day I Watched Several Traders Implode (Part 4)

I generally tell traders I work with that if they take two consecutive positions in the same direction and get stopped out both times, they are probably out of step with the market and should consider taking the rest of the day off. Many traders do not listen to this advice, but I’ve seen over the years that once you get ‘turned around’ in a market, you can lose a lot of money in a very short time if you just keep entering trades.

About 45 minutes later, there was a timid knock on the door and as you probably guessed, my six traders were back again with a fresh trade plan and a new chart. Let me show you the chart:

When they entered the prop room, price had not yet moved below the blue up sloping Lower Median Line Parallel and they had just started to explain their new plan to get long when one of them looked up at my screen and mumbled, “Never mind”, and once they all saw where price was trading—well below the line—they turned on their heels and walked out without a word.

You can see that they were stuck on an idea and the market was punishing them for inflexibility. This is how traders turn a ‘normal’ losing trade into a series of losing trades that grow in size and can cripple their account or even cost them all their trading capital! The market is always right.

Once again, there was a knock on the door. They were back again, trade plan and chart in hand. I will give them credit for coming back to talk with me before each trade, even though they were having a very bad trade. They weren’t willing to take my advice but they did come and ask my opinion of their charts and trade plan. Here’s the chart they brought with them this time:

When they showed me this chart, I admit I told them quite clearly that they were out of step with the market and turned around. I saw no sign of anything remotely looking like a sign of strength. In fact, price had just tried to climb higher and had left double tops.

Their response was that price was now down more than 21 S&P points and they thought the chart was starting to look ‘bottom-ish’. The bars I viewed as double tops they actually liked, because they had moved above some prior bars, which they felt showed strength. Clearly, I was not getting through to them. I once again urged them to call it a day or if they decided to keep trading, at least ‘buy another bar’ and wait for the market to show them some true strength. But they were adamant about the charts looking ‘bottom-ish’ and didn’t want to miss the rally that was surely coming during the last 90 minutes of trading day, ‘when the shorts would get squeezed.’

Here’s what the next bar showed them:

As the next bar closed, one of them popped their head into the prop room and gave me a ‘thumbs up’ sign. They were long and hadn’t gotten stopped out. They were excited because price had left a double bottom and in their opinion, had closed above the blue up sloping line two bars in a row [in my opinion, price had closed right on the up sloping line both times, which to me showed a lack of buying].